Miguel Córdoba had trouble finding steady work as a carpenter and handyman before Hurricane Maria devastated Puerto Rico last year. Now the 52-year-old says he pulls steady 40-hour workweeks for a taxpayer-financed housing program that repairs damaged residences.

His wages have nearly doubled, too, thanks to a new minimum-wage law enacted last summer by Puerto Rico Gov. Ricardo Rosselló, coupled with a surge in demand for construction labor across this struggling U.S. territory. Mr. Córdoba spent his summer days fixing roofs and windows and installing toilets, wash basins and cabinets in houses mostly in eastern Puerto Rico, where Hurricane Maria first made landfall.

The construction workforce, estimated at roughly 33,000 before Hurricane Maria, will need to double to keep up with demand to rebuild roads, houses and other infrastructure damaged in last year’s storm season, said Emilio Colon-Zavala, president of the Puerto Rico Builders Association. Cement sales, a proxy for construction activity, increased for eight months straight after Hurricane Maria to 33% above prestorm levels.

Puerto Rico’s building industry is booming, fueled by federal disaster-relief dollars and insurance proceeds together projected to total $82 billion over time. The influx has turned construction into a bright spot for an island economy racked by population loss, a declining manufacturing base and the largest municipal bankruptcy in U.S. history.

Since the hurricane, federal agencies have obligated $4.8 billion for recovery work in Puerto Rico through last August, according to the Center for a New Economy, a San Juan-based think tank. While financial planners don’t know the exact scale of federal assistance over the next decade, the U.S. government has made some firm commitments already, including an $18.5 billion grant for rebuilding housing and other infrastructure.

Meantime, the construction industry is reckoning with rising costs. Not only have wages increased, but material costs have risen since the Trump administration imposed tariffs on steel and aluminum from Canada, Mexico and the European Union and on Chinese products like home appliances, electrical equipment and other materials critical to Puerto Rico’s rebuilding efforts.

Puerto Rico relies heavily on Chinese imports, and 72% of those products are subject to new or additional tariffs implemented this year, according to KPMG LLP, a trade and customs consultancy.

Costlier labor and supplies are upending financial projections and potentially shrinking the number and size of feasible projects, said Stephen Spears, president of the Associated General Contractors of America’s Puerto Rico chapter.

Puerto Rico Gov. Ricardo Rosselló argued that raising construction workers’ wages would coax laborers into the building industry at a time when it badly needed them.
Photo:
Carlos Giusti/Associated Press

“If you have a $100 million project, you now have a $135 million project,” Mr. Spears said. “All of a sudden, those dollars that were estimated and delegated to us for the reconstruction of the island are going to have much less impact.”

Gov. Rosselló, through an executive order in late July, raised the minimum hourly wage on government-funded construction to $15 an hour from $8.25. He argued the move would coax laborers into the building industry and persuade workers to stay in Puerto Rico rather than migrate to the mainland U.S.

In August Puerto Rico’s oversight board said the new minimum wage could “leak into the broader economy” and apply to work that isn’t covered by federal taxpayers, “making it more costly to undertake the vast amount of private reconstruction required on the island and likely reducing employment of construction workers for private projects.”

Contractors and developers say the new wage level also risks slowing the completion of vital repairs. The governor’s order will raise overall construction costs by between 8% and 20.5% and contribute between 0.5% and 1.2% to overall inflation, according to San-Juan based economic consultancy Estudios Ténicos. Puerto Rico’s oversight board expects inflation to stay below 1.6% through the 2023 fiscal year.

Higher costs mean fewer projects completed each year and a “smaller and weaker private construction sector when the federal funds eventually run out,” according to an Estudios Ténicos study commissioned by Puerto Rico business groups and reviewed by The Wall Street Journal. One government project to improve roads in western Puerto Rico will cost 24.75% more because of the new wage mandate, Estudios Ténicos found.

While Puerto Rico’s $15 hourly floor applies only to public construction, both supporters and critics say the effects could extend to the private sector, forcing small businesses’ to raise wages to retain workers and potentially compelling some to consolidate.

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Yet raising the minimum wage enjoys significant popular support in a territory where construction laborers earned a median hourly wage of $8.69 last year compared with $13.79 in Florida, according to the Bureau of Labor Statistics.

Edison Severino, an organizer for the Laborers’ International Union of North America, or Liuna, said a higher minimum wage was necessary to encourage people who work in the large underground economy or have given up looking for employment to rejoin the formal labor force.

Puerto Rico’s labor participation rate hovers around 40%, lower than the Dominican Republic’s and the overall U.S. rate of 63%.

“You need to motivate people to work,” Mr. Severino said. “You’re not incentivizing people to get up and work if what they make is so minimal.”